The High Court is being asked to decide whether adult-only pornographic videos and DVDs can be sold by licensed sex shops on the internet.
Two senior judges were told yesterday that overseas sex industry rivals would benefit and "the local economy" suffer if sales by mail order and on the telephone by UK companies were ruled unlawful.
Two test cases are being brought by licensed sex businesses fined thousands of pounds after prosecutions were brought against them by Liverpool City Council's trading standards department.
Interfact Ltd, an Essex-based mail order shopping company, and Pabo Ltd, based in Birmingham, were both found guilty at Liverpool Magistrates' Court in April last year of contravening the 1984 Video Recordings Act by supplying, or offering to supply, the "R18" classified videos featured in their website catalogues.
The prosecutions occurred following investigations by a trading standards officer who made test purchases of explicit films which can only be sold to those aged over 18.
The hearing continues.